Noteholder Strategy

Further to my posting yesterday re. Convertible Notes.
The company forwarded to the ASX the announcement regarding the sale of the two properties and the ASX posted it online. Part of the announcement included the following:-
The Directors of Antares Energy Limited (ASX:AZZ) are pleased to advise of the execution of two
independent Purchase and Sale Agreements with the same Private Equity purchaser for the sale of
Northern Star in the amount of 148,788,560 USD and Big Star in the amount 105,069,420 USD.
The closing of these two independent Purchase and Sale Agreements with the same Private Equity
purchaser will be on or before the 30th November 2015 and is subject to usual commercial closing
conditions and adjustments. The gross pretax proceeds from these transactions are expected to be
approximately 250,000,000 USD which will be subject to customary closing adjustments, taxation
and frictional costs.
The announcement in no way states the agreements are unconditional and if they were, the normal practice with the sale of property, a deposit would be paid. They have not stated a deposit has been paid. They emphasise the signing of agreements but do not state the properties are actually sold.
So one can rightfully assume at best, these are both conditional sales. The companies letter of response to the ASX certainly indicates they are not unconditional sales, as they state the purchaser may have the ability to walk from the sales.
My own opinion is that the ASX jumped the gun, posting the announcement. They should have at least verified that they were unconditional agreements, preferably with a deposit paid and if that wasn’t the case, the companies announcement should have been altered to reflect such.
Prior to the announcement of the sales agreements, the share price was around the 8 -10 cents mark. That price had major implications for the company as the Convertible Notes were less than 2 months away from investors been able to redeem them for $2-00 per note 10 working days prior to the 3 yearly reset date of 31^st October 2015. (The reset date occurs every 3 years on the 31^st October). At the reset date, the noteholders at their option, can 1) redeem the notes, 2) convert each note into 3 common shares in the company 3) roll them over and continue to receive quarterly interest payments. The only variation the company can make to the notes on the reset date is to alter the interest rate they pay on the notes. It is also important to remember these three points about the notes. 1) their security ranks equally with unsecured creditors 2) their security ranks ahead of ordinary shares and 3) they can be converted to ordinary shares at any time by the noteholder.
So if the share price had remained in the 8-10 cents range prior to the reset date, personally I don’t believe any noteholders would have converted their notes to ordinary shares and they would more than likely looked at the cash balance of the company and been unsure how long the company could continue to make interest payments. The big thing they will be totally aware of, is that they have priority of security over the companies assets, compared with ordinary shareholders.

So if I was a Convertible Note holder and had some question marks as to whether the properties have been unconditionally sold or not, I would:-

• Give 10 working days notice prior to reset date, that I want to redeem 20% of my Convertible Notes at $2-00 per Note. This equates to approximate 65cents per ordinary share if I had converted my Notes to ordinary shares. (not a bad outcome given what the ordinary shares had been trading at after the sale announcement but prior to the suspension of trading).

2)   Wait and see if sales actually settle and the share price rallies higher. If it does, I could then consider converting my remaining 80% of Notes to 3 ordinary shares and take advantage of the higher price of the ordinary shares.
If the sales do not settle and it eventuates that the company cannot continue to trade as a going concern and the assets of the company were liquidated, I would have the comfort of at least knowing my notes offer me the protection of higher security over the ordinary shares.